How to choose between Citizens and a no-name home insurer

What to know about cost, service and getting a claim paid

November 3, 2011|By Julie Patel, Sun Sentinel

If you've got Citizens property insurance, you may want to think about shopping.

Gov. Rick Scott on Tuesday ordered state-run Citizens Property Insurance to find ways to reduce its risk by December, which effectively means customers will have to pay higher premiums or find another insurer.

Citizens, the state's largest insurer, has nearly 650,000 policies in Southeast Florida. Reducing the insurer's risk could mean allowing premiums to rise by more than 10 percent a year, the current cap. Legislation to allow less-regulated insurers, called surplus lines, to take over Citizens' policies cleared a state House committee this week.

Don't expect to turn to the national insurance companies. Most have scaled back in the state, leaving smaller or less well-known companies as the alternative to Citizens.

Faced with those choices, should you stick with Citizens or go with a company you've never heard of?

Q. Which is cheaper?

A. For now, Citizens is often cheaper than private insurers because of the rate cap. Citizens President Scott Wallace estimated this week that statewide average rates could rise by 35 percent if the rate cap is lifted. Individual premium increases could vary dramatically throughout the state.

Other reasons Citizens' rates are low: it is tax-exempt and, as a state-run operation, it doesn't have to make a profit. Those factors wouldn't change.

But it's important to know that everyone in the state may be charged fees if Citizens runs out of money to pay claims after a storm, and the fees could be high. Citizens policyholders could pay up to 45 percent of their premiums.

That could amount to $1,100 after a rare storm, the kind that strikes once every hundred years, on top of the $2,000 that an average policyholders pays in premium, Wallace said.

Given the choice between Citizens and a company that charges more upfront, many homeowners take Citizens, knowing they risk paying more later, said Robin Westcott, the state's Insurance Consumer Advocate.

Q. Which provides better service?

A. Newer companies don't have a track record, so consumers may not find much information on them.

But private insurers, new or old, compete with each other and Citizens for business, so they're more likely to care about what their policyholders think.

Citizens, on the other hand, was among 13 insurers that received the lowest proposed grades on a report card drafted by the state's former Insurance Consumer Advocate. The grades were based on customer complaints to the state about claims from 2004 through 2008. That includes the 2004 and 2005 hurricanes. Citizens said it has improved since then.

If there isn't much of a price difference between Citizens and a private insurer, "then it comes down to … who has the best service that fits the needs of the customer," she said.

Q. Which is more likely to pay my claim?

A. If an insurer was formed after Hurricane Wilma, consumers won't be able to find much information about how the company handles hurricane damage claims. Newer insurers haven't had time to build their claims-paying reserves, so they're arguably more prone to financial problems.

That said, many Florida-based companies have been around for years and are well-capitalized.

State law requires insurers to have $5 million in claims-paying reserves, and legislators recently increased the minimum for existing insurers to $10 million by 2016 and $15 million by 2021. The newest insurers, authorized to operate on or after July 1, need $15 million from the start.

If most private insurers fold, policyholders with claims wouldn't be completely out of luck: A state program would take over the claim. The exception would be homeowners who choose the less-regulated surplus lines companies.

Citizens, which has nearly 1.5 million policies, has an estimated $5.7 billion in claims-paying reserves.

Citizens has another advantage here: It can borrow money after a hurricane to help pay claims and charge fees to nearly all Floridians to pay back the loan. The state Legislature gave $715 million in 2006 to help the insurer pay hurricane claims. It's unclear if that would ever happen again.

One disadvantage of Citizens is that the insurer argues it can't be sued for "bad faith" in claims disputes with policyholders, as private insurers can. Critics say that can lead the insurer to deny, delay or lowball some claims.

Q. How do I find insurers and compare them?

A. Check which insurers have the most policies in your county, their contact information and a comparison of their rates for two particular types of homes at the state's Consumer HomeOwners Insurance Comparison Electronic System (CHOICES) website, http://www.floir.com/choices.